Aspiring or Expanding Retailer? Welcome!

This surprises some folks: Retail startups are not limited to that new little shop down the street.

Instead, retail "startups" can include a simultaneous multi-store launch. Or opening additional locations in new geographic markets. Maybe a temporary "pop-up shop" to test a new retail concept. Or the launch of a robust e-commerce site. Sometimes, manufacturers decide to launch their own chain of stores as a way to grow their brand.

Each of these is indeed a retail startup. They differ in the resources required for them to take root and flourish.

Any one of these approaches to growth requires that you develop your plans, explore real estate or web hosting opportunities, evaluate systems, identify mid-management talent, line up financing, and so on.

But wait! Before you get too far down the road on any of these areas, you first must decide on your fundamental growth strategy. Your growth strategy and your tactics must align!

The Four (Only!) Ways that Retail Businesses Grow

There are just two major variables that affect a retailer's growth and expansion:

Customers

Merchandise Mix

Each of these two variables is further divided between what you have Now (e.g., "Present Customer Profiles", Present Merchandise Mix) and what would be New or different types of customers or merchandise mix.

And that means that there are, fundamentally, only four ways that your business can grow.It all depends on which combination of these variables you choose to pursue.

Knowing which way you intend to grow, or recognizing when you are in the midst of a growth spurt which variables are changing the most, gives you more opportunity to exercise leadership and apply controls.Growth = Change = StressBut, there is one other factor to keep in mind: how much change does each growth mode require of your organization?

1. Growth by Market PenetrationWhen you take your present retail concept and merchandise mix, and "roll it out" to similar types of customers by opening more store locations or venues, you are growing by Market Penetration.

The focus is on replicating your store concept/ format, or making your online retail operation scalable.

Caution: you may be surprised to discover that opening additional stores across town or in another town, or launching an e-commerce website, may actually involve you in the Market Development growth strategy. Why? Because the customers across town, and the online shoppers, can be very different from the customers served from your present storefront.

2. Growth by Concept DevelopmentHere, the focus is to change out the merchandise mix, or add to it, with categories that are logical extensions for existing types of customers.

This can have major impact on your Balance Sheet, as you add inventory.

Plus, impacts will ripple through your P&L as well. While vendors may seem very generous with funds for training your staff and advertising the new product lines, beware the hidden costs of over-buying.

3. Growth by Market DevelopmentGrowing by Market Developmentis where many growth-by-Market-Penetration plans often end up!

The customers across town, or online shoppers, can be very different from the customers served from your present storefront. This is where customer psychographics (a combination of demographics, lifestage, and values) are very important.

Is your retail concept appropriate for college towns? Or county seats? Or hip urban neighborhoods? Follow the customer!

4. Growth by DiversificationGrowing by Diversification – that is, taking a new or revised merchandise mix out to a new type of customer segment – is essentially a new retail startup!

Introducing a fresh concept to a market is an exciting opportunity. But all too often, retail organizations end up in a "diversification" mode without intending to be there.

They discover, for instance, that putting their merchandise on their website is simply providing another way for their customers to shop. Must be "Market Penetration."

But in fact, the folks who shop on the web are very different from those who prefer to come into their stores. So, we have now slipped into "Market Development", needing to deal with new kinds of customers.

Meanwhile, those new kinds of customers may want different products, too! Yikes! Now they are also involved with new products and merchandise mix...which lands them in Diversification.